The Demand for M3 in the Euro Area

57 Pages Posted: 11 Dec 2002

See all articles by Günter Coenen

Günter Coenen

European Central Bank (ECB)

Juan Luis Vega-Croissier

Europaische Zentralbank

Date Written: September 1999

Abstract

In this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long- and the short-term nominal interest rates, (ii) the long-term real interest rate, and (iii) a long-run demand for broad money M3. There is evidence that the determinants of M3 money demand are weakly exogenous with respect to the long-run parameters. Hence, following a general-to-specific modelling approach, a parsimonious conditional error-correction model for M3 money demand is derived which can be interpreted economically. For the conditional model, long-and short-run parameter stability is extensively tested and not rejected. Insights into the dynamics of money demand are gained by means of SVAR techniques exploring the impulse response functions of the cointegrated multivariate system.

Keywords: Money Demand, Euro Area, Cointegration, Error-correction Model, Impulse

JEL Classification: C22, C32, E41

Suggested Citation

Coenen, Günter and Vega-Croissier, Juan Luis, The Demand for M3 in the Euro Area (September 1999). Available at SSRN: https://ssrn.com/abstract=355145 or http://dx.doi.org/10.2139/ssrn.355145

Günter Coenen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7887 (Phone)
+49 69 1344 6575 (Fax)

Juan Luis Vega-Croissier

Europaische Zentralbank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
153
Abstract Views
3,851
rank
262,703
PlumX Metrics